Payday Lenders Escape Reforms

But The Bill That Didn't Make It Through The House Wasn't To The Liking Of Consumer Advocates Anyway.

May 6, 2000|By Gwyneth K. Shaw, Tallahassee Bureau

TALLAHASSEE - One down, one to go.

Consumer advocates celebrated the 2000 legislative session as the end of a five-year battle to rein in interest rates on car-title loans. Legislation capping annual interest rates on the loans at 30 percent is ready for the governor's signature.

But a second similar industry targeted this session - so-called payday lenders - escaped without new regulations. Senate President Toni Jennings, R-Orlando, vowed before the session to deal with the issue, and a bill sponsored by Sen. Skip Campbell passed that body unanimously.

But House Speaker John Thrasher, R-Orange Park, allowed the session to close Friday evening without hearing the bill, which was clogged with more than 60 amendments.

Representatives from Florida Legal Services, a key player in the battle over title and payday loans, said Friday that they were relieved that Campbell's bill never got to the House floor. They enlisted several House members to file the amendments, in order to kill the measure.

``We would much prefer to have gotten some good legislation this year,'' said Dorene Barker, a lobbyist for Florida Legal Services. ``But in light of what was offered to us - and the fact that the payday-loan industry would not compromise - this is the second-best thing.''

Payday loans work like this: Customers in need of quick cash borrow against their bank accounts, handing over a post-dated check for the amount they need, plus a fee. The terms are short, a week or two, to tide people over till payday.

Campbell's bill would cap fees at 10 percent of the face value of the check, plus an additional $5 fee; limit transactions to $500; and ban lenders from rolling over the check if a customer can't repay the loan. It also would prevent customers from having more than one outstanding loan from a lender at a time.

Consumer advocates opposed Campbell's bill because, they say, the 10 percent fee still amounts to on outrageous interest rate. That fee, stretched out over a year according to the two-week term of the loan, could translate into an annual interest rate of nearly 300 percent, they say.

They also argue that the bill wouldn't prevent customers from going from lender to lender to pay off the previous loan, a practice that's nearly guaranteed to suck them into a cycle of debt.

Consumer groups favored a reform bill originally sponsored by Rep. Bob Starks, R-Casselberry, and Sen. Kendrick Meek, D-Miami, which would have held payday loans to the same 30 percent limit as title loans. Neither bill got out of committee hearings.

Campbell, D-Tamarac, has spent much of the session railing against criticism of his bill. He says it's unfair to extrapolate an annual interest rate when his bill - as enforced by the state Department of Banking and Finance - would ensure that customers don't pay more than the up-front fee, even if they can't repay the loan.

``It's a free loan, after that,'' Campbell said.

The bill prohibits payday lenders from bringing criminal charges against their customers. Instead, after 60 days, lenders could try to get their money back in civil court. The state comptroller and attorney general supported Campbell's proposal.

Florida Legal Services could have supported Campbell's bill, had it included a provision allowing local governments to pass tougher laws. After the state twice failed to act, more than three dozen counties have passed their own title-loan reform laws, and consumer advocates had hoped for a similar reaction on payday loans.

Barker said there are three options now: Hope for a favorable ruling in a class-action suit challenging the legality of payday loans; working out a deal with the industry; or coming back to the Legislature next year.